Comment on Kaiser Foundation Health Plan’s Proposed Individual Health Insurance Rates

OSPIRG Foundation

Executive Summary   

Kaiser Foundation Health Plan of the Northwest has proposed premium rates for its individual and family plans for 2014. Since its initial rate filing, the insurer has submitted a proposal to reduce those rates.

Thanks to a new law requiring all Oregon insurers to offer standard plans, it is now possible to compare proposed rates apples-to-apples across Oregon’s insurers for the first time. In our analysis of this and other filings, we examine the premium proposed for one of these standard plans, the Oregon Standard Bronze plan for a 40-year-old nonsmoker in the Portland Metro area. This allows us to make meaningful comparisons across insurance companies. 

Kaiser initially proposed a rate of $229 for this benchmark plan.   Since this rate was proposed, Kaiser submitted a letter to the Oregon Department of Consumer and Business Services (DCBS) proposing a 10% reduction to the initially filed rates. The need for this reduction was attributed to information that became available after the filing deadline.

Oregon’s health insurance rate review program serves as a critical backstop to protect Oregon individuals and families purchasing coverage on their own from paying unreasonable premium rates.

With federal health reform bringing important new consumer protections into effect in 2014, many more Oregonians will be able to access coverage, and health insurance benefits and out-of-pocket costs will change substantially for many Oregonians. In addition, insurers will no longer be allowed to deny coverage to people with pre-existing conditions, and many Americans will be required to have health coverage or pay a penalty. These changes make it more urgent than ever to ensure that premium rates are justified, and that consumers receive good value for their premium dollar.

OSPIRG Foundation worked with the actuarial firm AIS Risk Consultants to analyze Kaiser’s rate filing. We examined the insurance company’s justification for the proposed rates, the financial position of the insurer, and how the rates would impact Oregonians if approved. Our staff and consulting actuary also reviewed additional information made available by Kaiser.

After careful analysis of Kaiser’s initial filing and the supplemental information provided so far, we have some concerns that we urge DCBS to consider carefully before moving forward with a decision on the final rates.

Key Findings:

• In proposing a 10% reduction from the rates initially filed, Kaiser acknowledged that its original proposal contained significant errors. This underscores the need to carefully scrutinize all the factors and assumptions used to calculate Kaiser’s rates, and those proposed by all insurers, to make sure that only a fully justified rate is approved.
• We are concerned that Kaiser’s projection of a 5% trend for medical costs has not been justified by the documentation provided. According to Kaiser’s filing, the insurer experienced an average cost trend of only 1.1% for its Individual plans. With a number of major national studies demonstrating a substantial slowdown in health care cost growth in recent years, Kaiser’s projection of accelerating cost growth deserves close scrutiny.
• Kaiser’s projection of an additional 30.7% increase in claims costs due to the health status of the newly insured is very high and has not been justified. The exact cost impact of expanding coverage remains unclear, but Kaiser’s projection is on the high end and should be scrutinized closely. Some experts have predicted that covering the currently uninsured will prove to reduce costs, since many uninsured individuals are young and healthy, and incur few medical costs.
• It is unclear whether Kaiser has adequately adjusted its cost projections to reflect a reduction in “bad debt” due to the expansion of coverage as the Affordable Care Act (ACA) comes fully into effect. With hundreds of thousands of Oregonians newly eligible for coverage in 2014, uncompensated care is sure to decline, and this benefit should be passed along to consumers in the form of lower rates. Kaiser’s filing indicates a number of areas where ACA provisions may increase costs, but does not include this key area where reform will lead to cost savings.
• When it comes to reducing costs and improving the quality of care, the filing lacks the quantitative measures and benchmarks needed to demonstrate Kaiser is pursuing an effective strategy. While Kaiser appears to be employing a broad and comprehensive approach to reducing the cost of care by cutting waste and improving quality, it remains unclear from the information provided so far whether Kaiser is doing all it can in this area because no specific measures or benchmarks for cost and quality have been outlined for its many programs.

Before deciding to approve or deny this rate request, we urge the Insurance Division to scrutinize the issues raised here, require Kaiser to provide all documentation necessary to evaluate their proposal, and to clearly outline a concrete, achievable plan to contain costs for Oregon individuals and families.